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porters dimond model

Michael Porter's 'Competitive Advantage of Nations' explores why certain nations and social groups prosper, focusing on the concept of a 'home base' that fosters competitive advantages. The theory identifies four key determinants of national competitive advantage: factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry, collectively known as 'Porter's Diamond.' The document also discusses the stages of national competitive development and how various factors contribute to a nation's economic success.

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10 views

porters dimond model

Michael Porter's 'Competitive Advantage of Nations' explores why certain nations and social groups prosper, focusing on the concept of a 'home base' that fosters competitive advantages. The theory identifies four key determinants of national competitive advantage: factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry, collectively known as 'Porter's Diamond.' The document also discusses the stages of national competitive development and how various factors contribute to a nation's economic success.

Uploaded by

rajeevrawal86
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Porter’s ‘Competitive Advantage

of Nations’ : An Assessment
Introduction

The Competitive Advantage of Nation’s is an


comprehensive book addressing a question which lies
at the heart of economic and managerial science:

‘Why do some social groups, economic


institutions and nation’s advance and prosper?’
(Porter, 1990 : xi)
Porter’s Two Monographs
Porter conducted a comprehensive study on
10 leading nations to learn what leads to
competitive advantage to nation’s.

• United States • Japan


• Germany • Korea
• Italy • Denmark
• Sweden • Singapore
• United Kingdom • Switzerland
The Theory

• The primary role of a nation is to provide ‘home


base’ to a firm.

• Home base is the nation in which the essential


competitive advantages are created and sustained.

• Usually home base will be the location of most


productive jobs, core technologies and the most
advanced skills.
Competitive Advantage of Nation’s
• Michael Porter* describes four keys to a nation’s
competitive advantage in relation to other countries

• Factor Endowments
• Demand conditions
• Related and supporting industries
• Firm Strategy, Structure and Rivalry.

* Popularly referred to as “Porter’s Diamond”


Porter’s Diamond
Determinants of National Competitive Advantage
Co
mb
e nt ine
r nm Firm Strategy, dI
mp
ove Structure and a
G ct
Rivalry

Factor Endowments Demand Conditions

Co Related and
mb
ine Supporting ce
dI n
mp
Industries Cha
a ct
Factor Conditions:
• BASIC FACTORS – Natural resources, climate, location and demographics

• ADVANCE FACTORS – Communication Infrastructure, skilled labour,


Research facilities and so on.

• Basic factors can provide only an initial advantage

•They must be supported by advanced factors to maintain success.


E.g.
• Switzerland was the First country to experience labour shortages. They
abandoned labour-intensive watches and concentrated on innovative/high-
end watches.

• Japan has high priced land and so its factory space is at a premium. This
lead to just-in-time inventory techniques.

• Sweden has a short building season and high construction costs. These
two things combined created a need for pre-fabricated houses.
Demand Conditions:
• Home country Demand plays an important role in producing
competitiveness.

• Enables better understand the needs and desires of the


customers

• It shapes the attributes of domestically made products and


creates pressure for innovation and quality.

E.g. 1
• Italian ceramic Industry after the world war II
• There was a postwar housing BOOM !!
• Consumers wanted cool floors because of
E.g.Hot
2 climatic conditions
• Japan’s knowledgeable buyers of cameras made that industry to
innovate and grow tremendously
E.g. 3
• The French wine industry. The French are sophisticated wine
consumers. These consumers force and help French wineries to
produce high quality wines.
Related and Supporting Industries:
• Benefits of investment in advanced factors by Suppliers and
related industries can spill over

• Creates clusters of supporting industries, thereby


achieving a strong competitive position internationally.

E.g.1
• The enamel production unit was available.
• The glazes production was also
• favorable.
• These two were the main composition of producing tiles.
This reduces the Transportation cost.
E.g. 2
• Switzerland success in pharmaceutical industry is closely
related to its international success in technical dye industry.
Firm Strategy, Structure & Rivalry:
• Long term corporate vision (Strategy) is a determinant of success

• Ability of the companies to develop and sustain a competitive advantage


requires the 4th attribute.

• Presence of domestic rivalry improves a company’s competitiveness


E.g. 1
• Low entry barriers to market in the tile industry
• Rivalry became very intense
• Breakthroughs in both product and process
technologies
E.g. 2
• Japan has high priced land and so its factory space is at a premium

• This lead to just-in-time inventory techniques

• (Japanese firms can’t have a lot of stock taking up space, so to cope with
the potential of not have goods around when they need it)
• They innovated traditional inventory techniques.
International Trade and Investment

• Contribution Towards The Theory

• Direct relation with Stages of National Competitive


Development
Porter’s Stages of
National Competitive Development
Driver of Development Source of competitive Examples
advantage
Factor Condition •Basic factors of CANADA,
production AUSTRALIA,
i.e., Natural Resources, SINGAPORE,
Geographic Locations, SOUTH KOREA before
Unskilled Labour 1980

Investment •Investment in Capital JAPAN during 1960’s


equipment.
•Transfer of SOUTH KOREA during
technology. 1980’s
•Presence of national
consensus in favour of
investment over
consumption
Innovation All four determinants of JAPAN since late 1970’s
national advantage interact
to drive the creation of ITALY since early 1970’s
new technology

Wealth Emphasis on managing UK during post war period


existing wealth USA
Competitive Advantage Switzerland since 1980
Thank You

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